NEW YORK (AP), Aug 05 - Wells Fargo & Co. on Friday said that it has agreed to pay $590 million to settle a class-action lawsuit filed by investors in Wachovia securities.

The settlement would end a suit filed in 2008 in federal court in Manhattan, charging that Wachovia misled investors in its bonds and preferred securities by understating losses associated with risky mortgages. Wells Fargo bought Wachovia that year at the height of the financial crisis.

The San Francisco-based bank said in a regulatory filing with the Securities and Exchange Commission that the deal needs court approval before it takes effect.

Investors including several New York City pension funds for teachers, police, firefighters and other employees claim in the suit that Wachovia repeatedly claimed that its mortgage loans were made with ``high underwriting standards and a conservative approach to lending.'' But they claimed that after the bank bought Golden West Financial Corp. in 2006, it started using that bank's riskiest practices.

That included companywide adoption of Golden West's ``Pick-A-Pay'' mortgages, which gave borrowers options on the size of their payments, including an option for minimum payments that did not cover monthly interest, but instead added to the principal on a loan. These loans were also routinely made without verifying borrower income or ability to pay, further increasing risk, and were among the most likely to default, the suit maintains.

By the end of 2007, Wachovia held $120 billion of Pick-A-Pay mortgages and $50 billion of traditional mortgages, according to the complaint. More than half of the $120 billion consisted of loans in California, while about 10 percent was in Florida. These were among the hardest-hit states in the housing crisis, where property values dropped the most, further increasing the risk of default by borrowers whose loans were greater than the value of their homes.

The suit alleges that Wachovia repeatedly misled investors by making false statements about the stability and profitability of the mortgage loan portfolio and by concealing the number of loans that were defaulting. And it says Wachovia also obscured the extent of losses in its subprime mortgage-backed securities such as collateralized debt obligations.

A Wells Fargo spokeswoman said the bank ``agreed to this settlement to avoid the distraction, risk and expense of on-going litigation,'' but it does not constitute an admission of Wells Fargo of liability or any violation of law by Wachovia.

Attorneys for the plaintiffs did not immediately respond to requests for comment.

The deal has already been reflected in Wells Fargo's financial statements and will not have an impact on its financial position, the SEC filing said.

This is the latest in a series of settlements by the nation's biggest banks over the mortgage mess.

On July 6, Wells Fargo agreed to pay $125 million to another group of pension funds and other investors to settle allegations it failed to warn them of the risks of poorly-written mortgage-backed securities.

On June 29, Bank of America Corp. announced the largest bank settlement on record when it agreed to pay $8.5 billion to a group of investors for writing poor-quality mortgage bonds that were packaged and then sold as securities.